Thousands of fans in red and green jerseys who had watched the match on a giant screen set up in central Lisbon fell silent after the final whistle and drifted home with flags stuffed in their pockets.
Many squatted on the ground staring into space for a while. Some were in tears.
“I really believed we would go all the way this time. This is so sad, it's beyond words,” said 23-year-old student Cristina Perreira.
The crowd had been subdued ever since French captain Zinedine Zidane scored the winning goal with a hotly-disputed penalty on 33 minutes.
Portugal have never reached a World Cup final and have only appeared in the semi-finals once before - in 1966 when they lost 2-1 to hosts and eventual winners England.
Portuguese Prime Minister Jose Socrates, who travelled to Munich to watch the match, said the team had proven it is amongst the best in the world despite its loss to France.
“I think the team did a lot for Portugal's international prestige and we are indebted to them for this. I am very proud of this squad and I am sure all Portuguese people are as well,” he told private television SIC after the game.
Many supporters who had donned national colours and put up flags in recent weeks, in one of the biggest outpourings of patriotism since the nation returned to democracy in 1974, expressed frustration at the team's historic inability to beat France.
“They always seem to pull the rug from underneath us. It would have been such a huge party tonight if we won,” said 26-year-old warehouse worker Bruno Aguiar.
Portugal's last victory over France came in 1975. The Portuguese national team headed into Wednesday's World Cup semi-final having lost its previous seven matches against the French side, including losses in the 1984 and 2000 European Championships semi-finals.
“I had started to believe we were invincible,” said 41-year-old economist Carlos Ribeiro.
“The Portuguese dream is over,” said sports daily Record on its online edition. “The dream has reached the end,” echoed rival sports newspaper A Bola on its site.—AFP